from the this-is-why-fewer-and-fewer-people-trust-analysts dept

It's really stunning to see people who obviously should know better continually insisting that content can't possibly be free to consumers. We've been seeing a lot of it in the news business lately, as newspaper execs who have built up an ad business for many years seem oblivious to the fact that consumers have almost never paid directly for news. And now that same sort of ridiculous thinking is showing up in the video market. Christopher Schneider points us to an article written by Dan Rayburn, who apparently is an analyst at Frost & Sullivan, but who appears to be wholly unfamiliar with network TV in claiming that video content can't possibly be free:

Frankly, I don't see where this idea of "free" comes from. Video content costs money to produce, to distribute and to consume. Yet even with those costs, many seem hell-bent on the idea that business models can somehow survive based on the consumption of free video content supported solely by an ad model. But in reality, that simply can't happen.

It comes from basic economics, Dan, combined with knowledge of how network TV has worked for many decades. In some businesses consumers pay for stuff. In others, third parties do it. In network TV, advertisers have always paid the freight. You would think that a big-time analyst would be familiar with that. But, of course, it looks like Dan doesn't get the economics right either:

If people are not willing to pay a content owner for their content, then it's not worth anything. That's the bottom line.

Dan, how much did you pay for the air you breathe? Ok. How much is it worth? Your "bottom line" is flat-out wrong. Value and price are two different things. Value plays into the demand curve, but price is set by the intersection of supply and demand. If something is priced at zero, it doesn't mean it's valued at zero.

In the comments, after people point out Dan's seeming blindspot for the largest distributor of video content for the past seven decades, Dan tries to redeem himself by pointing out that networks today get additional money from MSOs (cable/satellite providers) to get carried (you may have heard the recent battles over some of these). Of course, that's a recent phenomenon. For years, network TV was very much for free to users, despite the fact that "video content cost money to product, to distribute and to consume" and even as people were not willing to pay the content owner for it -- but it was still worth quite a bit to them.

And, of course, even in the case with cable and satellite fees, Dan's still wrong. People don't pay their cable provider for access to network TV (they can already get that for free). They pay for the bundle of channels, of which the network channels are not very important to most users, since those are accessible over the air (and, yes, in some cases people have trouble getting local stations). Hell, if we want to go by analogy, let's be direct: sure, people pay for cable TV, but they also pay for their ISP bill (sometimes to the same company).

Furthermore, Dan's analysis of YouTube's profitably seems woefully confused as well. He uses Viacom's filings in the YouTube case, which have already been shown to take statements out of context, and whose comments all refer back to a few years back rather than today. Yet, recent studies have suggested that YouTube may actually be profitable, or at least getting pretty close to it. Even Google has hinted at YouTube's profitability -- and some have pointed out that Google's dark fiber ownership could mean that its bandwidth bill is a lot lower than some analysts think.

Basically, there's proof that free-to-the-consumer video has worked in the past, and can work again. On top of that, there's growing evidence that Google is at least close to profitability with free-to-the-consumer video online, and the models that are working there are only likely to continue to grow. These are the sorts of points and trends you would expect an analyst following this market to know, so it's a bit surprising that this particular analysis seems to be lacking them. And people wonder why companies are looking to dump their analyst spend budgets lately...

Isn't the real issue massive fragmentation? There is so much online content and ad inventory today that all the ad dollars get split up to a point that no one can make money for creating content, just repurposing what someone else created instead. News pubs can't afford to maintain a staff of writers now that TV and newspapers are losing money. With TV hemoraging money towards online the old models just don't work anymore. Figure out how to fix that issue and you have a billion dollar idea on your hands. You free Network TV model will only survive so long.

Free-Market Corollary

The following is an incorrect assumption of how the free-market works: "If people are not willing to pay a content owner for their content, then it's not worth anything."

The correct wording should be "If people are not willing to pay a content owner for their content, then the content creator should NOT produce it."

Content creators seem to make the mistake that if they produce something that there really is a market for it. Before producing something, and expecting a profit, they need undertake "due diligence" and see if people will actually pay. If not, then don't produce the content!!!!!!!

Re:

Agreed. At one time the most efficient means to distribute news was for every community to have its own printing press. Those days are long fricken gone.

The same could be said of local TV broadcasters, other than local news, what purpose do they serve? I don't understand why the major networks simply don't drop their affiliates and run their own cable/satellite networks.

Re: Free-Market Corollary

Another issue here is also that the "people" mentioned are not just the end viewers, but also the advertisers and other attached business models that go toward the bottom line. If the advertisers or the "t-shirt sales" pay enough, then it doesn't matter whether any viewers are paying directly for the content.

Analyst are just like any other job

Every profession has people who are good at their job, and people who aren't. Just because you call yourself an analyst doesn't mean you know what you're talking about. I should think your career would be brief though if you're spouting demonstrably false analysis.

Re:

But someone has to create everything, and creation has only become easier and cheaper with techonological advances. Those who distribute quality and original content will attract the most attention, and that attention will be priced accordingly because it is the most attractive for advertisers. I don't see how "fragmentation" is a market issue, because it is in response to demand and advertisers will pay for space in the places that best cater to that demand.

Now, it could certainly be an issue for existing business models, but that has everything to do with their business infrastructure and nothing to do with offering free video content.

Cause and effect?

I think he's got his causes and effects backwards. People are *willing to pay* a premium for better content, defined as some combination of free-of-advertising, or more narrowly targeted (this includes content not subject to FCC decency standards), or of higher production values.

Because people are *willing to pay* for higher quality content, that content tends to be driven away from the free venues, where it is replaced by gameshows, Dateline, and Leno at 10pm.

These debates always remind me of MBA class case study-type discussions, especially this one class I had with an instructor who used to be an exec at Ford. He always referred to the fact that American car manufacturers failed because they refused to make the kinds of cars people wanted. They refused to listen to the market. It's sort of like the horse-and-buggy scenario all over again.

Years from now, we'll be discussing people like Dan Rayburn in our grad schools.

Remember when?

We paid to get cable so we would not have to watch commercials? And we pay exorbitant prices to go to a theatre and are forced to sit through 20 minutes or so of commercials? It's time for them to quit bellyaching and give us a break! And tv shows are now almost 50 % commercials! How is that fair when we have to pay for them in the first place?

Pay to shop at the maill

Exactly! I look at my TV as a BIG shopping mall: fun to visit once in a while, definitely not worth paying an entrance fee to visit. But somehow there’s this idea that the mall owners can put a gate in front of the mall and charge people to go in. Sure, some people will pay to enter the mall, the vast majority will not.

I pulled the plug on paying an entrance to TV content because its value is way less (to me) than the price. I feel advertisers are already paying the freight anyway, so my delivery costs are on top of the fees already being paid by advertisers. However, that argument is not the point. Personally, I’m not willing to pay. My rationale is my business.

I agree with another commenter who said that advertisers will put their money with content which gets the most viewers, regardless of how fragmented the content market is. Content is cheap now, it’s easy to produce and distribute. Cheap, as in nearly free. So big content providers are waging a war where they are competing with low entrance barriers and cheap/plentiful delivery systems.

The answer for big content industry is to tear down the internet and make it difficult to produce content and deliver it. 3D content has an edge for now, but this won’t last long. Consumer 3D cameras and editing software will spring to life making 3D production consumer friendly in the near future.

Re:

Dan You are spending money on the cable provider, go down to radio shack and get a digital converter and an antenna hook it up to your tv ... like magic, free TV!! Its free because its paid for by advertising.

What you are seeing now is this wonderful thing called competition. The record labels and tv studios refer to competition as "Felony interference with a business model" because it threatens them. Twenty five years ago we had 3 local stations plus PBS. Now we have an almost unlimited amount of channels 700+ TV channels around the world, YouTube, NetFlix, RedBox, etc. This has driven up the competition and driven the amount advertisers are willing to pay down. The internet has made advertising online cheaper, more effective, and more targeted than TV. This makes TV less relevent to advertisers.

"Their content is worth money" here is the really important thing you just do not get. The content is only worth as much as people are willing to pay. Making a statement like "People will pay this much and I wont lower the price" leads to even more competition and people infringing because the costs are to high. The monopoly of TV being the only source for home video entertainment ended with cable. Cable will pass into oblivion as more people get broadband and only pay for what they watch, download, or get for free.

Here is an idea embed the advertisements into the TV shows, pepsi, coke, the latest porsche lite. Also take a clue from the show charmed, with music by these artists at the end of the shows. This way you can do an hour show that lasts an hour that people cant remove the advertising from without ruining the show. That allows the TV studios to just allow bit torrents and infringers to go wild and they still make a profit at the cost of a little control.

Re: Re: Re: Ouch

But until we actually have a problem, i.e. a loss of content generation, why are we trying to fix the problem?

Content providers are constantly saying that without strong protections, we will have no content.... But there isn't ANY evidence of this, and one cannot even imagine how this could even come about.

In fact, the opposite is quite literally and provably true. The more protections we have on content, the less choice we have for content... content "protections" restrict what content we can enjoy/know/leverage, and pulling content from the market that "infringes" existing content limits how content/knowledge can be embedded into new media/technology/products.

Re: Re:

But many of us DO pay for the air we breathe...

For years, I have paid for expensive filters for my room air cleaner, and the electric power to run it, to enable me to breathe without dealing with seasonal allergies -- pollen, dust, neighbor's airborne pet dander, etc. And there are millions out there like me -- the air I breathe is NOT FREE.

Re:

Dan, I can read just fine. You clearly said that the costs of video could not be supported by advertising. Broadcast TV proves you wrong.

Where in my post am I talking about the broadcast TV model and advertising? No where.

You said "Frankly, I don't see where this idea of "free" comes from. Video content costs money to produce, to distribute and to consume. Yet even with those costs, many seem hell-bent on the idea that business models can somehow survive based on the consumption of free video content supported solely by an ad model. But in reality, that simply can't happen."

The same is true of network TV, and yet you ignore it as if it doesn't prove you wrong.

I talked about YouTube, Hulu, MLB.TV, HBOGO.com, bandwidth costs etc..... all subjects that have NOTHING to do with broadcast TV models.

But you got the economics of YouTube flat out wrong.

This is about VIDEO ON THE INTERNET, not TV. Why some of you want to take my words and apply them to "Broadcast TV" makes no sense.

Dan, you were the one who insisted that there was no way that video could be free to consumer. Considering that we have a system where video is free to the consumer that has worked for decades, it seems only fair to point that out.

Furthermore, you said "If people are not willing to pay a content owner for their content, then it's not worth anything. That's the bottom line."

Broadcast TV proves you wrong. That you didn't mention it doesn't help your case, it hurts it, because it suggests you were wholly unfamiliar with it.

You made multiple statements that were proved false by broadcast TV, and yes it's evidence that you weren't talking about broadcast TV, because if you had maybe you would have realized how incorrect your statements were.

A little less religion, a little more thought

I love techdirt, but sometimes you need to look a little deeper at the numbers.

Pick any network tv show in primetime. Do you think any are there for zero license fee ? You think Dick Wolf produces Law & Order for NBC Universal for free ?

You think the producers of American Idol dont get paid ?

Dan is right, there is no money to be made on the net on content for 99.9999999999 of content, and people at some point stop working for free.

But his point still applies to broadcast. While viewers may only pay with their attention, and they may not even realize that they are the product being sold to advertisers (how is that for turn around. The networks pimp you out to advertisers and you give them your time for free...), the reality is that content is expensive to produce and it gets paid for before its on the air.

Re: A little less religion, a little more thought

"But his point still applies to broadcast. While viewers may only pay with their attention, and they may not even realize that they are the product being sold to advertisers (how is that for turn around. The networks pimp you out to advertisers and you give them your time for free...), the reality is that content is expensive to produce and it gets paid for before its on the air."

Umm, he specifically claimed that ad-supported video content is unsustainable. So, no, his point does not "still apply."

Re: A little less religion, a little more thought

I love techdirt, but sometimes you need to look a little deeper at the numbers.

Hi Mark, thanks for joining the conversation... I'm a fan of yours as well, but sometimes you need to read a little more carefully. :)

Pick any network tv show in primetime. Do you think any are there for zero license fee ? You think Dick Wolf produces Law & Order for NBC Universal for free ?

No one said anything of the sort. Dan said, quite clearly, in his post, that he was talking about paid directly by the consumer. And I said, quite clearly, in my post: "In some businesses consumers pay for stuff. In others, third parties do it." No one said that they don't get paid. That's you making it up.

Dan is right, there is no money to be made on the net on content for 99.9999999999 of content, and people at some point stop working for free.

Now you're arguing something different -- that individuals producers of content might not get paid. But you're also switching around the argument in a bogus way. That's because probably 99% of people making video content online aren't doing it for money. Yes, there is that 1% who is, and many of them aren't making money. But that doesn't mean they can't.

But his point still applies to broadcast. While viewers may only pay with their attention, and they may not even realize that they are the product being sold to advertisers (how is that for turn around. The networks pimp you out to advertisers and you give them your time for free...), the reality is that content is expensive to produce and it gets paid for before its on the air.

Again, you are AGREEING WITH ME. That's exactly what I said in my post. So, I'm not sure who you think you're disagreeing with. Of course the viewers are only paying with their attention. That was MY POINT. Dan was saying that was impossible, that you couldn't make money just paying with attention.

Clearly, some people want to take out of context what I wrote for their own purposes, and for those folks, it makes no sense for me to debate what I wrote.

My blog header is "the business of online video", not TV, not broadcast video. I didn't talk about the TV model, I only talked about online video. Why some of you think you can argue my point, by talking about a completely different broadcast medium makes no sense.

It would be like me saying that gas for an airplane is too expensive, and you are replying by saying no it isn't, people buy it for cars everyday. One has nothing to do with the other.

It also makes no sense to try to discuss a topic with people who want to argue facts. I'm told that I "got the economics of YouTube flat out wrong", because I said it was unprofitable. Yet the numbers I gave come directly from Google which has said that YouTube is not yet profitable. YouTube is monetizing more than a billion streams a week which equals 15-20%% of their traffic. You want to debate the economics, go debate them with Google who gave out those numbers.

Mike says "it's evidence that you weren't talking about broadcast TV", yet apparently I am wrong for writing a post that was only focused on online video business models. TV and online are two different mediums, with two different models, with two different costs, two different kinds of traffic, delivered at two different kinds of quality, delivered to two different kinds of devices.

But apparently I can't possibly write about one medium, online video, without you thinking I have to mention the other, broadcast video.

Re: Re:

and the only reason why cable is so expensive is because local governments grant monopoly power to cableco companies and the only reason why broadcast/airwave T.V quality has been getting worse is because the FCC, over the years, has been granting monopoly power of more stations to fewer entities hence artificially reducing competition.

Re:

My blog header is "the business of online video", not TV, not broadcast video. I didn't talk about the TV model, I only talked about online video. Why some of you think you can argue my point, by talking about a completely different broadcast medium makes no sense.

Dan, it absolutely makes sense because it *disproves your claim*. You said that it was impossible to make money from free video -- and we're pointing to broadcast TV to prove that this is a false statement.

It would be like me saying that gas for an airplane is too expensive, and you are replying by saying no it isn't, people buy it for cars everyday. One has nothing to do with the other.

But that's not what you said. The argument you made for why online video is too expensive doesn't just apply to broadcast TV, but applies MORE to broadcast TV. It's *more* expensive to produce video for broadcast TV, yet they found a way to make money.

It also makes no sense to try to discuss a topic with people who want to argue facts. I'm told that I "got the economics of YouTube flat out wrong", because I said it was unprofitable. Yet the numbers I gave come directly from Google which has said that YouTube is not yet profitable. YouTube is monetizing more than a billion streams a week which equals 15-20%% of their traffic. You want to debate the economics, go debate them with Google who gave out those numbers.

I pointed out where Google has denied the claim that they're not profitable. The fact that they're only monetizing some of their videos does not mean they're not profitable.

But my claim about your economics being wrong was your blatantly false claim that "If people are not willing to pay a content owner for their content, then it's not worth anything. That's the bottom line." Again, this is proved factually incorrect by broadcast TV.

Mike says "it's evidence that you weren't talking about broadcast TV", yet apparently I am wrong for writing a post that was only focused on online video business models. TV and online are two different mediums, with two different models, with two different costs, two different kinds of traffic, delivered at two different kinds of quality, delivered to two different kinds of devices.

But nothing you said in your post that was focused on online video doesn't apply to broadcast TV. That's why I brought it up. Because the same reasons you put forth for why online video can't be profitable are the same issues facing broadcast TV... and yet they did figure out a way to be profitable.

So claiming that it's impossible is flat out wrong.

But apparently I can't possibly write about one medium, online video, without you thinking I have to mention the other, broadcast video.

Dan, please. Of course you can write about online video without mentioning broadcast video.

What you should not do (but did) was to make arguments saying that something was impossible that were easily disproved by broadcast video. If you made any arguments that showed why online video was unique from broadcast video, then you might have a point. But you didn't. Your reasons why online video couldn't be profitable were the same issues that face broadcast video.

That's why we brought it up. Because it proves you were wrong, no matter how much you won't admit to your mistake.

I can't debate something with someone who wont listen to facts. Mike said:

"I pointed out where Google has denied the claim that they're not profitable. The fact that they're only monetizing some of their videos does not mean they're not profitable."

No Mike, you did NOT link to anything that says that. You referenced a Google blog post which said that Google is "at a point where growth is definitely good for our bottom line, not bad." No where did Google deny anything about being profitable.

In fact, they said the EXACT OPPOSITE. On Google's Q3 earnings call, and I quote, they said, "YouTube is on its path to profitability in the not-too-distant future," and that was said 3 months AFTER the blog post you linked to.

You also said to me, "If you made any arguments that showed why online video was unique from broadcast video, then you might have a point. But you didn't."

Here we go again, people only want to read from my blog what they feel like, not what I actually wrote. I specifically said:

"It cannot be debated or even argued that there are no fixed distribution costs when it comes to online video. Cable and satellite distribution methods have fixed delivery costs, video over the Internet never will."

But apparently that does not count as showing how "online video was unique from broadcast video".

I'm wasting my time on this thread. There is just no point in me discussing it anymore. Everyone is welcome to their own opinion and if folks want to argue, cool, that's their right and I hope they enjoy the conversation, but I've got to move into other work.

Re: Re: A little less religion, a little more thought

fair enough, let me try again.

You say free to consumer has worked in the past, and it can work again. Correct ?

IMHO, your disconnect is in aggregate audience for an aggregator (ie youtube), vs simultaneous audience for network tv. Free to consumer on network tv was enabled because its BROADCAST. Each program on Network TV can reach 100mm people. No reg scheduled shows do, but the ad supported (yr 3rd party) comes because the scale on any given show is big enough to pay for most of the cost of the license fee (most network shows deficit fund).

That is completely different from the internet model. Video on the internet is not broadcast, its unicast. Each user costs money. Each live user costs a lot of money. I think that is where your example is wrong.

If you want the valued content that you mention , it takes an investment of millions of dollars per eps in most cases to work on network tv. (excluding reality shows). And the audience has to come quickly or they cut bait and run because the show cant be paid for.

Switching to youtube, there is one ENORMOUS difference between youtube content and network TV (and even cable tv content). Youtube NEVER pays for content up front. THey sell everything on consignment. THey take a percent of the ads they sell and they give you a pct of the ads. That may work with the people who are making content thay costs very little (and i disagree with you, even those who want to make money on their content, 99,9999999pct dont make money still.( But a significant number make some of their money back and thats better than nothing. Youtube has been great for those folks).
Because Youtube never guarantees any revenue to producers, they are not going to get the vast majority of the content you suggest could be valued highly. Why ? bEcause content producers take on quite a bit of financial and time risk as it is. In the Youtube model they take on 100pct of the risk. IN the tv model, whether network or cable, the content producers typically dont create content on spec. They may do a pilot, but even that is rare for network TV. The Network usually funds pilots.

So, where this all comes out is that Youtube ALWAYS plays with other people's money. They get theproducers to absorb 100pct of the production costs. IMHO, they arent going to get any good content until that content has been monetized or tried to be monetized EVERYWHERE else.

That also impacts how you look at the youtube financial model. Maybe they might break even, but they dont have any investment in content. They pay a commission for content. Which IMHO opinion means they are never going to get great content.

You know what has made Netflix so successful at getting content (even if they had to support windows) ? Its that they guarantee money to the content owners. You can get a guarantee of a minimum check which distributors of content LOVE LOVE LOVE>

You know why redbox got content at the beginning (before they got so big the big guys had to deal with them differently) ? Because they guaranteed money to movie distributors. Hell its why people protect their relationships with walmart, best buy abnd blockbuster. Say what you want about the future of those businesses, but they actually buy products and send you a check. You dont have to wait to see if someone buys your movie or show or someone watches it and Google sells some ads.

SO youtube as a businessmodel may be profitable and then some today , but its primarily because they take on ZERO product risk. They put it all on all those little guys that want to make any amount of money from the content they put their heart and soul into.

So while bandwidth costs going down is a great thing for youtube now. If we ever get to the point of a very cheap marginal delivery cost for billions of streams (download, thats notgoing to happen with live), then other companies will be in the position to put up some cash and lock out Youtube from content or force them to pay for content upf ront. Which they may be happy to do, but I wouldnt bet on it.
This is exactly how HBO changed the movie business. They committed to pay money up front to movie producers and tv producers for that matter.

So content isnt free unless no one else has valued it enough to pay for it up front. Even then, what is good is relative, so there may be some nuggets that come through the system. But the reality is, youtube assigns 100pct of the risk on the content producer, which means the quality of content you get is always going to be worse than the distributors (usually tv ), that pay for the content up front.

Re: Re: Re: A little less religion, a little more thought

"That is completely different from the internet model. Video on the internet is not broadcast, its unicast. Each user costs money. Each live user costs a lot of money. I think that is where your example is wrong. "

We have methods where ISP's take one downstream signal and broadcast it to multiple sources hence reducing the pathway cost for downstreaming and downloading. For instance, some ISP's have buffers where they store popular files and when someone requests a file, instead of coming from the server (which slows down both the ISP and the server since the ISP must download and upload the information), the ISP simply uploads the info from its own servers, saving the original server upload bandwidth and saving the ISP download bandwidth. Routers can also take a broadcast stream and split it into multiple broadcast streams, and many ISP routers do, if more than one person on the router requests something. This saves bandwidth both for the ISP and the broadcaster.

Re: Re: Re: A little less religion, a little more thought

So basically what you're saying is completely false, if anything, the internet is MORE efficient than braodacst because signals ONLY go in the direction they are requested, they do not get transmitted along unused pathways like is the case in broadcasting.

Re: Re: Re: Re: A little less religion, a little more thought

I can't remember the name of this phenomena, whereby ISP's take a single stream or file from a server and copy it across multiple different pathways if multiple people from the ISP request it, hence saving everyone bandwidth? Can someone remind me please? There is a specific name for it.

Re:

In fact, they said the EXACT OPPOSITE. On Google's Q3 earnings call, and I quote, they said, "YouTube is on its path to profitability in the not-too-distant future," and that was said 3 months AFTER the blog post you linked to.

Uh, Dan, that proves my point. Your whole post was claiming that YouTube could never be profitable.

*sigh*

"It cannot be debated or even argued that there are no fixed distribution costs when it comes to online video. Cable and satellite distribution methods have fixed delivery costs, video over the Internet never will."

But apparently that does not count as showing how "online video was unique from broadcast video".

The distribution costs are just one element of it -- and you again are wrong here. The blog post that I pointed to, which you mocked in this same comment, discusses how Google's fiber backbone investments mean that via peering arrangements, its distribution costs *are* fixed, or at least virtually fixed. Despite your claim that this is impossible.

I'm wasting my time on this thread. There is just no point in me discussing it anymore. Everyone is welcome to their own opinion and if folks want to argue, cool, that's their right and I hope they enjoy the conversation, but I've got to move into other work.

Re: Re: Re: A little less religion, a little more thought

You say free to consumer has worked in the past, and it can work again. Correct ?

Yes.

IMHO, your disconnect is in aggregate audience for an aggregator (ie youtube), vs simultaneous audience for network tv. Free to consumer on network tv was enabled because its BROADCAST. Each program on Network TV can reach 100mm people. No reg scheduled shows do, but the ad supported (yr 3rd party) comes because the scale on any given show is big enough to pay for most of the cost of the license fee (most network shows deficit fund).

Right. Those are the economics of broadcast TV. We agree.

That is completely different from the internet model. Video on the internet is not broadcast, its unicast. Each user costs money. Each live user costs a lot of money. I think that is where your example is wrong.

No doubt. The distribution economics are somewhat different, but the difference is not nearly as big as you or Dan seem to be implying -- especially with Google and its own fiber ownership.

Also, while it is true that each user costs some money (I'd argue the "a lot of" claim), that need not necessarily be the case. It may be the case today for many providers (potentially not Google, again, given the fiber), but there are ways around this, such as by distributing the bandwidth load (via something like BitTorrent) or through multicast type technology.

If you want the valued content that you mention , it takes an investment of millions of dollars per eps in most cases to work on network tv. (excluding reality shows). And the audience has to come quickly or they cut bait and run because the show cant be paid for.

Yes, that's the TV model, but need not be the model for the internet. In fact, it's quite similar to the discussions we've had about music. In the past, you *needed* a big record label deal to make it work. And they needed to put forth a huge upfront capital outlay. But the internet has changed those economics. The cost of creation has gone down -- and while it might not be *quite* as good as a big expensive studio, bands can be pretty damn good for much less money. Same is true with video.

Unlike the old model (spend big, pull the plug quickly if it sucks) the new model can be more efficient (spend small, build an audience... keep growing the audience, and as you grow that audience you can increase your spend). That's actually better for everyone. And we're seeing that this works well in music, and it can (and does) work well in video as well.

Switching to youtube, there is one ENORMOUS difference between youtube content and network TV (and even cable tv content). Youtube NEVER pays for content up front. THey sell everything on consignment.

Indeed. Welcome to the new more efficient world. :)

THey take a percent of the ads they sell and they give you a pct of the ads. That may work with the people who are making content thay costs very little (and i disagree with you, even those who want to make money on their content, 99,9999999pct dont make money still.( But a significant number make some of their money back and thats better than nothing. Youtube has been great for those folks).

Ok...

Because Youtube never guarantees any revenue to producers, they are not going to get the vast majority of the content you suggest could be valued highly. Why ? bEcause content producers take on quite a bit of financial and time risk as it is. In the Youtube model they take on 100pct of the risk. IN the tv model, whether network or cable, the content producers typically dont create content on spec. They may do a pilot, but even that is rare for network TV. The Network usually funds pilots.

Sure. But now we're arguing something different -- and I disagree that high quality content doesn't go on YouTube. Many people do put it there for one very good reason: it's where the audience is. Sure, the majority of content on YouTube isn't high quality, but that's meaningless to this discussion.

That also impacts how you look at the youtube financial model. Maybe they might break even, but they dont have any investment in content. They pay a commission for content. Which IMHO opinion means they are never going to get great content.

Again, they have a huge benefit: the eyeballs. It's hard to discount that.

You know what has made Netflix so successful at getting content (even if they had to support windows) ? Its that they guarantee money to the content owners. You can get a guarantee of a minimum check which distributors of content LOVE LOVE LOVE>

Sure, but you're basing this on what the content owners love, not what the consumers love. Now, you can argue (and I'm assuming you are, implicitly) that if the content owners don't love a deal, then they won't fund/make the content. But that's showing a missing element of the dynamic market. The content providers that are going to succeed are the ones who better cater to consumer needs. It's what we're seeing in the music business. Trying to hold back from what the consumer wants is only an opportunity for someone to do it better.

And I'm familiar with a few different production houses that are actively creating inexpensive high quality content for YouTube.

You know why redbox got content at the beginning (before they got so big the big guys had to deal with them differently) ? Because they guaranteed money to movie distributors. Hell its why people protect their relationships with walmart, best buy abnd blockbuster. Say what you want about the future of those businesses, but they actually buy products and send you a check. You dont have to wait to see if someone buys your movie or show or someone watches it and Google sells some ads.

Yes, of course. And companies will work hard to protect those sorts of relationships. The only problem? The consumer doesn't care at all about how you make your money.

SO youtube as a businessmodel may be profitable and then some today , but its primarily because they take on ZERO product risk. They put it all on all those little guys that want to make any amount of money from the content they put their heart and soul into.

Yes. But Dan's argument was that YouTube couldn't be profitable and that no video producers could be profitable giving away content for free. Both of those are wrong, which is the point we were making.

What you're really arguing (I think) is that many people who try to create content on YouTube won't make money. And we agree. It's the whole "long tail" theory at work. Most of the folks in the long tail don't make money. Agreed. But that doesn't mean that free doesn't work. There have always been content creators who didn't make money. That's got nothing to do with free.

The point we're making is that you can still use free content to make money if you put in place a smart business model with it.

This is exactly how HBO changed the movie business. They committed to pay money up front to movie producers and tv producers for that matter.

And that worked... in cable, because it was a limited market. Not so with the internet.

So content isnt free unless no one else has valued it enough to pay for it up front. Even then, what is good is relative, so there may be some nuggets that come through the system. But the reality is, youtube assigns 100pct of the risk on the content producer, which means the quality of content you get is always going to be worse than the distributors (usually tv ), that pay for the content up front.

Perhaps, but I wouldn't bet on it. I think a lot of smart content producers recognize that in the land of the blind, the one-eyed man is king -- and as such, if they produce top quality content for YouTube, they can get a lot of attention and then cash in.

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Dan, you said in your article:

While it's true that the cost of distributing video over the web is getting cheaper by the day, it will never be free. I'm now hearing some people in the industry saying that one day soon, delivering video will be so cheap that content owners won't even think about the costs.

The distribution can already be so cheap that content owners don't need to think about it. One example would be Mininova.

Re: Re: Re: Re: A little less religion, a little more thought

Provided the government doesn't pass evil laws to stop it, which is why cableco prices are so high and even public airwaves are mostly just commercials (thanks to FCC monopolies). Evil rich people get an unearned monopoly on both the content distribution vehicle AND on the content. It's absolute nonsense and the public should be outraged.

and provided that IP restrictions don't get in the way of innovation like they always have (ie: copyright putting such an expensive and unnecessary burden on content distribution systems for the purpose of restricting them out of business in the name of copyright protection when the real purpose is to put them out of business to reduce competition like they did Napster).

Re: Re: Re: Re: Re: A little less religion, a little more thought

and part of the purpose of ACTA is to stop content distribution. It's not about copyright, that's just a red herring, it's about stopping indie content creators from distributing their content and competing with the evil incumbents.

www.youtube.com/ipl is a good example of where the Youtube economy is headed. IPL cricket matches are watched by hundreds of millions in India and worldwide, and the IPL bosses have made a very smart move by offering live telecast on Youtube, They have even got a sponsor in Airtel, one of India's biggest telecom companies, who are also a major advertiser on the television broadcasts.

It's a pretty good equation now: more people flock to youtube, which also gets paid by IPL, which gains more goodwill and money from advertisers, who in turn get more exposure through youtube, which foots the bill for distribution costs. And there is no cannibalism of TV audiences--people who watch on TV won't stop just because the feed's available on Youtube.

But the moot point here is that nothing's free: it may be free for the consumer, but it has been paid for elsewhere.

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Ok

Last time I checked, people pay for Network TV. There are really no "free" channels anymore. People pay for cable, at least basic cable, or sat., but either way there is no plugging in your TV and getting free TV. Advertisers pay and the consumers pay...the TV market is double dipping.

On youtube or similar sites, yes there is no cost to watch, but saying Network TV is free is pretty ignorant man.

Ok

Last time I checked, people pay for Network TV. There are really no "free" channels anymore. People pay for cable, at least basic cable, or sat., but either way there is no plugging in your TV and getting free TV. Advertisers pay and the consumers pay...the TV market is double dipping.

On youtube or similar sites, yes there is no cost to watch, but saying Network TV is free is pretty ignorant man.

ok

That is completely different from the internet model. Video on the internet is not broadcast, its unicast. Each user costs money. Each live user costs a lot of money. I think that is where your example is wrong.

No doubt. The distribution economics are somewhat different, but the difference is not nearly as big as you or Dan seem to be implying -- especially with Google and its own fiber ownership.

From MC>That is where I agree with Dan and disagree with you. Fiber is not a panacea. Its expensive. Just because you buy cheap fiber to peering points doesnt pre empt you from having to get in the rat race of always upgrading and investing in capital costs. Its just as variable a cost as renting bandwidth from someone else.
Plus, it doesnt solve the last mile. Google realizes this which is why they want to experiment with running their own last mile fiber. Which of course is right now just talk. It will be interesting to see how they report numbers on this.

You can peer all you want, but you cant control quality of service.You cant multicast across peers without huge hassle and expense. You cant even assure delivery to the last mile. Which is why Youtube used 3rd party CDNs to deliver live content. Fiber is nice. Everyone should have some, but its not free and its not cheap, and it requires constant capital upgrades to maintain. Just look at Ciscos new "save the internet" router. Its just one more upgrade in a long series of upgrades. And i will repeat, it still doesnt solve last mile issues.
And it doesnt solve unequal peering issues either. At some point with peers if you are only getting terabytes of data and not taking it back, you are helping your peer, you are hurting it. So the economics could easily change there as well

Also, while it is true that each user costs some money (I'd argue the "a lot of" claim), that need not necessarily be the case. It may be the case today for many providers (potentially not Google, again, given the fiber), but there are ways around this, such as by distributing the bandwidth load (via something like BitTorrent) or through multicast type technology.

From MC> The cost is in the details. The last peered multicast to consumer network was Broadcast.com's in 2000. Its hugely expensive to upgrade all the routers and the tunnels it takes for a stream are huge resource hogs. So ISPs are going to charge a huge premium to go through the process. I looked at creating a business just around providing multicast. It aint cheap and it aint going to happen. Plus, flash has just released their first mcast client and its for corporate (mcast is used internally at companies)

P2P is a red herring. It always sounds good, but is the least efficient protocol out there. Plus, again, bandwidth isnt free. Its just stolen, i mean borrowed from other users who usually dont even know they are doing it. Plus it requires a client, which for youtube to push on everyone would create more privacy and malware articles that could possibly cost them more than any amount of bw they could save. It just would be far more hassle than it could be worth. So i dont see P2P.

If you want the valued content that you mention , it takes an investment of millions of dollars per eps in most cases to work on network tv. (excluding reality shows). And the audience has to come quickly or they cut bait and run because the show cant be paid for.

Yes, that's the TV model, but need not be the model for the internet. In fact, it's quite similar to the discussions we've had about music. In the past, you *needed* a big record label deal to make it work. And they needed to put forth a huge upfront capital outlay. But the internet has changed those economics. The cost of creation has gone down -- and while it might not be *quite* as good as a big expensive studio, bands can be pretty damn good for much less money. Same is true with video.

From MC> No its not the same. Apples and oranges. You can still create music by yourself , anywhere and have it comparable to top quality professional music. Thats not the case with video. Plus musicians can still get paid for playing the same music that created on their mac at gigs. It doesnt work that way for TV shows or movies.

it costs more to create and your primary, if not only source is what you can sell the content for. Completely different model. Only thing comparable between music and video is that people steal it. Everything else is different

Unlike the old model (spend big, pull the plug quickly if it sucks) the new model can be more efficient (spend small, build an audience... keep growing the audience, and as you grow that audience you can increase your spend). That's actually better for everyone. And we're seeing that this works well in music, and it can (and does) work well in video as well.

Except that only works if the spend is pennies at a time. Which isnt going to get you professional content where the proucers/actors/camera people/directors/writers/gaffers/lighting people, etc get paid.

if its you and your buddies playing a song in front of your Mac and a microphone. That works. it doesnt work for people who are trying to make a living at it.

thats why you only really see talking head stuff like Fred work financially. its just fred and his pc.

Switching to youtube, there is one ENORMOUS difference between youtube content and network TV (and even cable tv content). Youtube NEVER pays for content up front. THey sell everything on consignment.

Indeed. Welcome to the new more efficient world. :)

Efficient for who ?????

Because Youtube never guarantees any revenue to producers, they are not going to get the vast majority of the content you suggest could be valued highly. Why ? bEcause content producers take on quite a bit of financial and time risk as it is. In the Youtube model they take on 100pct of the risk. IN the tv model, whether network or cable, the content producers typically dont create content on spec. They may do a pilot, but even that is rare for network TV. The Network usually funds pilots.

Sure. But now we're arguing something different -- and I disagree that high quality content doesn't go on YouTube. Many people do put it there for one very good reason: it's where the audience is. Sure, the majority of content on YouTube isn't high quality, but that's meaningless to this discussion.

From MC> The big lie of Youtube... thats where the audience is. The audience for who ? for what ? For youtube ? sure. For the people who pay youtube money to be promoted, sure.

For a couple videos a week out of the hundreds of thousands uploaded, sure. But again, 99.99999pct of the videos arent seen by anyone who wasnt related or paid by the person who uploaded it. I think you may miss that unless you get lucky and go viral, its EXPENSIVE to get an audience on Youtube. It just doesnt happen without a lot of luck.

And when it does happen and you get lucky and get views, most of those people look to get out of the youtube grind and graduate to TV or other mediums. Why ? So they can get paid for their work.

That also impacts how you look at the youtube financial model. Maybe they might break even, but they dont have any investment in content. They pay a commission for content. Which IMHO opinion means they are never going to get great content.

Again, they have a huge benefit: the eyeballs. It's hard to discount that.

From MC> Again, its expensive to get those eyeballs. Youtube knows it and charges content providers for access. Which turns your perspective upside down. To get those eyeballs for your content, you probably have to pay for the privilege

You know what has made Netflix so successful at getting content (even if they had to support windows) ? Its that they guarantee money to the content owners. You can get a guarantee of a minimum check which distributors of content LOVE LOVE LOVE>

Sure, but you're basing this on what the content owners love, not what the consumers love. Now, you can argue (and I'm assuming you are, implicitly) that if the content owners don't love a deal, then they won't fund/make the content. But that's showing a missing element of the dynamic market. The content providers that are going to succeed are the ones who better cater to consumer needs. It's what we're seeing in the music business. Trying to hold back from what the consumer wants is only an opportunity for someone to do it better.

From MC> COnsumers dont know what they like until its in front of them. Which means someone has to take the risk. Which means, when they do, unless it costs them nothing, or they have nowhere else to go, they arent going to youtube. they are going anywhere else they can. Youtube is cheap to get on, expensive to get eyeballs on

And I'm familiar with a few different production houses that are actively creating inexpensive high quality content for YouTube.

For demo purposes or to make money on YT ? Would love to see their work

You know why redbox got content at the beginning (before they got so big the big guys had to deal with them differently) ? Because they guaranteed money to movie distributors. Hell its why people protect their relationships with walmart, best buy abnd blockbuster. Say what you want about the future of those businesses, but they actually buy products and send you a check. You dont have to wait to see if someone buys your movie or show or someone watches it and Google sells some ads.

Yes, of course. And companies will work hard to protect those sorts of relationships. The only problem? The consumer doesn't care at all about how you make your money.

From MC> No question they dont care. But they do care about access and not all consumers want to spend their entire day searching through youtube. Not all consumers want content that was produced in a basement for free. Some want content that was professionally produced and would rather pay than spend all day searching. Which is why blockbuster makes more money renting DVDs than Youtube makes selling advertising around videos.

SO youtube as a businessmodel may be profitable and then some today , but its primarily because they take on ZERO product risk. They put it all on all those little guys that want to make any amount of money from the content they put their heart and soul into.

Yes. But Dan's argument was that YouTube couldn't be profitable and that no video producers could be profitable giving away content for free. Both of those are wrong, which is the point we were making.

From MC> I said may be profitable. I dont think they are either. I think even in the models they use for wall street they dont apply the overhead a standalone company would need to apply. But i wanted to be nice:)

and no content owner can make money giving it away for free. They may have some anecdotal success, but at some point the mortgage comes due and those who pay the mortgage producing content will have to get a job.. Dan is right on that front

What you're really arguing (I think) is that many people who try to create content on YouTube won't make money. And we agree. It's the whole "long tail" theory at work. Most of the folks in the long tail don't make money. Agreed. But that doesn't mean that free doesn't work. There have always been content creators who didn't make money. That's got nothing to do with free.

The point we're making is that you can still use free content to make money if you put in place a smart business model with it.

From MC> Lets define "make money" Can you generate 10k to 25k a year cranking out cheap videos for YT ? Probably. it will take a lot of work, but you can do it.

Can you make 100k consistently after your costs ? Maybe, but probably less than 50 of the millions who try will do it.

So it 50 people are proof enough, then you are right. I see everyone else that fails and that 50 or even 1k people able to make 100k a year is not proof that it works, but rather proof that it doesnt work

Let us suppose we live in a world where people have no disposable income
(some say most people in this world already live that way)
then something could be very valuable to people but they could simply not afford to buy it. I would say a home is very valuable to most people, and yet
most people cannot afford to buy one right now. So if the price is zero, it may not mean there is no value, only no money.

Can't be free...

Re: Ok

Much of this is only because of the monopoly power that the FCC grants over public airwaves and the monopoly power that local governments grant on cableco infrastructure. If it weren't for these monopolies these services would be far cheaper and probably even free.

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"Youtube is cheap to get on, expensive to get eyeballs on"

That maybe the case now, but I think that things like viral marketing and people spreading good content will make people get more eyeballs. You put high quality content and movies on youtube and when I see them I'll spread them, and guess what, this is hardly a unique idea. Everyone will spread high quality content. and if it reaches the point where a particular person can no longer spread their high quality content because they have to compete with other high quality content, guess what, then that means that high quality content is made and distributed on youtube.

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and not to mention, you don't understand the notion of the "Internet snowball effect" (for lack of a better term). Basically, when someone sees good content and spread it, if it's good content then everyone will spread it and it will spread exponentially.

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"So ISPs are going to charge a huge premium to go through the process."

The only reason why ISP's are expensive in the U.S. is because the government grants monopoly power over cableco/telco infrastructure and over who can build new infrastructure. In other countries they have far faster bandwidth for much cheaper prices and service providers are perfectly able to utilize more bandwidth without any problems.

"P2P is a red herring. It always sounds good, but is the least efficient protocol out there."

and despite its inefficiency, in other countries where everyone has a 100 Mb/sec connection, P2P still works perfectly fine and has no problem. So if we were to implement multicasting, which is currently only expensive because of the monopoly power granted by the government on building new infrastructure, then we can find far more efficient models.

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"IP-Only.Net is a Swedish-based ISP providing full multicast connectivity for all Internet access services. "

ISP's already use multicast, even in the U.S.

"Plus, flash has just released their first mcast client and its for corporate (mcast is used internally at companies)"

and it's used by ISP's as well. What's your point? It saves ISP's money and bandwidth. I can see how most corporations do not need it and so it will add extra cost to a corporations, but multicast is normally used to some extent at the ISP level. Sorry, an ISP is not your personal corporation, just because your personal corporation does not implement multicast does not mean that it's not used.

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"So if we were to implement multicasting, which is currently only expensive because of the monopoly power granted by the government on building new infrastructure, then we can find far more efficient models."

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(and it's not that expensive. Sure, it adds cost to each router, but ISP's implement it exactly because it reduces overall cost. Less bandwidth is needed both for the ISP and the content servers. The ISP does not need to download and re - upload multiple instances of movies, they just download ONE instance, saving TONS of bandwidth and COST, and upload multiple. I can see how it's not useful for most personal corporations and yes, it will add cost if not used, but at the ISP level, where it is used, it IS useful and reduces cost by reducing the bandwidth necessary).

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and yes, multicast is not often implemented all the way up to the last router at the ISP level, since that's difficult and not all routers (yet) support it. But that doesn't mean it's not implemented at all. As long as some routers implement it it can be used to take one signal and split it to multiple other routers, it can save substantial bandwidth costs.

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"There are no free channels anymore...there is no plugging in your TV and getting free TV."

Yes, there is.

There is lots of that. Especially for the 70%+ of US citizens that are urban. There are many channels of all-day, prime-time, all night, free-to-air, high-definition, expensive-to-produce Network TV content, all at no charge, with no contract. They blast it out in the hopes that you will watch it, and pay them nothing but your attention.

Isn't the real issue massive fragmentation? There is so much online content and ad inventory today that all the ad dollars get split up to a point that no one can make money for creating content, just repurposing what someone else created instead. News pubs can't afford to maintain a staff of writers now that TV and newspapers are losing money. With TV hemoraging money towards online the old models just don't work anymore. Figure out how to fix that issue and you have a billion dollar idea on your hands. You free Network TV model will only survive so long.